NOTE FROM THE PUBLISHER - It’s an honor for me to introduce to you the following article that I am sure will open up your mind to understand matters of money that our secondary and university schools are not programmed to teach us.
And precisely now when the Financial Services Committee of the U.S. House of Representatives has just passed (Nov. 19) the bill of Senator Ron Paul, which will allow that the Federal Reserve bank be audited, this article will allow you to understand how it is that the money is created, and why the banks really do not loan you the money that you think they lent you.
“All the perplexities, confusion and distresses in America arise not from defects in the constitution or confederation, nor from want of honor or virtue, as much from downright ignorance of the nature of coin, credit, and circulation.”
- John Adams in a letter to Thomas Jefferson.
by Jerre Kneip
The Federal Reserve System is a private corporation owned by its 12 District Banks which are, in turn, owned by a limited number of stockholder banks, both foreign and domestic. The initial issue stock is not traded and ordinary investors cannot own it.
The Federal Reserve System (FED) and its member banks create the “money” of the United States, known as the “dollar”, out of thin air through their authority to issue credit. The FED and its member banks loan this credit to individuals, businesses and to the various levels of government, including the United States Treasury, for which they charge interest.
The United States Treasury issues debt instruments in the form of Treasury Bonds, Notes and Bills which are purchased by investors, including the FED, which the Treasury is obligated to redeem at face value plus interest. All money of the United States is created and comes into circulation through this lending process, but only the Principle amount is created, all of which must be repaid with interest. But the Interest is never created; it must be obtained through additional borrowing.
The United States Mint prints and coins the currency of the United States. The Mint prints the millions of bills of all denominations and sells them to the FED at its cost of production (approximately 3Ç each) which, in turn, issues them to the banking system at their face value. Only a very small fraction of the money in circulation is in the form of paper currency or coins; the vast majority is in the form of book entries and is transferred electronically or by check.
Through this system the FED has no debt while the United States Treasury and many States and local governments are foundering on debt.
The term “money” is not defined in the Constitution for the United States; however, several of the clauses in the US Constitution that mention money are:
Article I, Section 8, Clause 2. The Congress shall have Power…To borrow Money on the credit of the United States. [Editor’s note - A BIG MISTAKE]
Article I, Section 8, Clause 5. The Congress shall have Power…To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures.[Ed. note - If the Congress has the power to coin Money why should it borrow Money?]
Article I, Section 8, Clause 6. The Congress shall have Power…To provide for the Punishment of counterfeiting the Securities and current Coin of the United States.
Article I, Section 9, Clause 7. No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.
Article I, Section 10, Clause 1. No State shall…coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debt.
The Founder’s understanding of the authority for the creation of money was stated in Blackstone’s Commentaries on the Laws of England as follows: “The coining of money is in all states the act of the sovereign power”.
In the United States, the sovereign power is vested in the People, who established their State governments which, in turn, drew up a contract between themselves – the Constitution for the United States of America – by which certain powers were delegated to the federal government, among them those stated above. Federal powers were further restricted by the adoption of the first ten amendments, known as the Bill of Rights. At Amendment Article IX, “The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.” and at Amendment Article X, “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”
Nowhere in the Constitution is the Congress authorized to re-delegate any of its delegated powers to any other entity. Since the sovereignty resides in the people, the issue of the Medium of Exchange, that is, the Money, belongs to the people who have delegated that authority to their representatives, the Congress.
The solution to “All the perplexities, confusion and distresses in America” recognized by Adams, that we are experiencing today, should become obvious. Now the banks create the medium of exchange and loan it at interest to the government, creating perpetual debt and ultimate bankruptcy.
We must reverse the process.
The medium of exchange (money) must be created by the government for the benefit of the people and loaned at a fee to the banks, and to the States and local governments, and spent into circulation for the legitimate expenses of the government. The issue then becomes a technical problem of balancing the inflow of money to meet the needs of the productive capacity of the people through their conversion of resources into useful products and commodities.
The accompanying diagrams illustrate the processes – as it is now, and how it should be.
As illustrated, this system would provide the funds necessary for full employment of resources, both natural and human, with out inflation of the money supply. There would be no need 2for a tax on the industry or labor of the people since any excess in the money supply which might cause inflation, would be drawn off through small duties and excises. Improvement in production efficiencies would result in lowering of costs and rising of labor rates. The money supply would increase with the natural increase in the population and the increase in physical output. Savings would be invested in factors of production to share in the generated profits since there would be no compounding of interest by the banks, and there would be no benefit in speculation other than the risk of new ideas and ventures becoming new industries. Funds for major purchases such as homes or autos would be available at small fees to cover the cost of administration. There would be no need for taxes on property of any kind, either real estate or the product of labor. Prosperity would become a product of effort and ingenuity and not of speculative schemes, political influence and greed.
[Jerre Kneip is publisher of The Free Press “Serving the People who seek Truth, Liberty and Justice” since 1994. $25 for 12 monthly issues. For sample copy send $2 to The Free Press, P. O. Box 2303, Kerrville, Texas 78029]